Let the psychology of the trader is a favorite topic of articles for beginners to learn stock trading, we focus on the mistakes of trader, which is often perpetrated by those who believed that already well-versed in the theory of technical and fundamental analysis. Although in practice it is a bit trickier.
We conducted a survey among our traders and identified major blunders in the implementation of trading strategies. You may not see anything new, but what is strange: it seems that these errors of trader seem obvious, but as soon as it comes to real trading, simple stock rules are immediately forgotten.
Technical errors of a trader
Opening long positions at the peak of the price trend
It would seem that it’s so obvious: who will buy the asset if it is at the peak of its price? One problem: how to determine what level of resistance has been accomplished and will the price pierce it or not, rushing up? Growing trend is bait for beginners who hope to get easy fast money, buying the asset, thus accelerating it. Isn’t this like a pyramid?
Remember who enters the market first: those who have experience and intuition, who backed up his intuition by technical analysis. They have the largest capital in the hands. Seeing a growing trend lovers of easy money rush to open long positions. And in that moment, when the market is attracting more and more speculators and experienced traders go out of the market, turning down quotes.
A few rules that allow to avoid such error by a trader:
- do not buy the asset rapid growth, which is also not backed by logical arguments and fundamental data. This trend is unstable;
- it makes sense to conclude the deal during the breakout of the level of support or resistance with a stop loss at the breakeven level.
Opening of a short position at the bottom
The essence is similar to the previous error — the investor does not always correctly assesses the strength of the trend and sells at the moment when the quotes have turned upwards. What to do:
- when opening a position, be guided by the speed of change of prices and fundamental factors ahead of or correlated indicators;
- enter the market partially, gradually adding the number of contracts at a time interval, if the main trend is confirmed.
Setting long stop losses
Often they are not set in the hope that the trend that is about to unfold and the investor will get profit. However, the trend is directed in the opposite direction, carrying a deposit of a trader. Strategy of setting of long stop loss is acceptable to markets with strong volatility, where the price can change every 5 minutes in different directions.
For light volatile markets (namely, they are recommended for novice investors): long stop-loss are the mistakes of trader which take away his time and money, and will fail.
Selling the leaders of rise or purchase the leaders of the fall
A trader opens a short position, seeing that the asset that just grew up, turned the trend down. The mistakes of the trader in this case that his opinion about the victory of “bears” over “bulls” is wrong, and goes down may just be a temporary correction. After a light drop (which is necessary psychologically to wait) over a possible rise (if it is not, the position will insure the stop-loss). What to do:
- remember that trading involves a game against the existing trend;
- there is a sense to open the position on the level of resistance or support as the turning point in the middle may be temporary.
Buying past growth leaders that have just dropped
A classic error of inexperienced traders who have not experience the previous behavior of prices over the history of stock trading. Assuming that the recent leader of growth falls only short-term, the investor buys the asset, but it will not grow in price. A vivid example — “the collapse of the dotcom”.
We have listed only the main errors of the trader to which we can add hope, unsystematic, the desire to get everything at once, etc., but they are not technical. Read an interview with well-known traders on our site and grow with us!
Good luck with your trading!